AirJoule Technologies Corp. (AIRJ) FY 2024 MD&A

Management’s discussion and analysis of our financial condition
and results of operations is based on our consolidated financial statements, which are prepared in conformity with accounting principles
generally accepted in the United States of America. The preparation of these financial statements requires us to make certain estimates,
judgments, and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions can be
subjective and complex and may affect the reported amounts of assets and liabilities, revenues, and expenses reported in those financial
statements. As a result, actual results could differ from such estimates and assumptions. Such changes to estimates could potentially
result in impacts that would be material to the consolidated financial statements.

While our significant accounting policies are described in more detail
in Note 3 to our consolidated financial statements appearing in Item 8 to this Annual Report on Form 10-K, we believe that the following
accounting policies were most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

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Share-Based Compensation

We account for share-based compensation arrangements granted to employees
and non-employees in accordance with ASC 718, Share-based Compensation, by measuring the grant date fair value of each award and
recognizing the resulting expense over the period during which the recipient is required to perform services in exchange for the award.
Equity-based compensation expense is only recognized for awards subject to performance conditions if it is probable that the applicable
performance conditions will be achieved. We account for forfeitures when the forfeitures occur.

We estimate the fair value of stock option awards subject to only a
service condition on the date of grant using the Black-Scholes valuation model. The Black-Scholes model requires the use of highly subjective
and complex assumptions, including the stock option’s expected term, the price volatility of the underlying stock, the applicable
risk-free interest rate, and the expected dividend yield of the underlying common stock, as well as an estimate of the fair value of the
common stock underlying the stock option.

We estimate the fair value of Earnout Shares (as described below),
which are considered compensatory awards and accounted for under ASC 718, using the Monte-Carlo simulation model. The Monte-Carlo
simulation model was selected as the valuation methodology for the Earnout Shares due to the path-dependent nature of applicable triggering
events. Under ASC 718, such Earnout Shares are measured at fair value as of the grant date and expense is recognized over the applicable
time-based vesting period (the applicable triggering event is a market condition and does not impact expense recognition). The Monte-Carlo
model requires the use of highly subjective and complex assumptions, estimates and judgements, including the current stock price, the
volatility of the underlying stock, the expected term, the risk-free interest rate, the selection of comparable companies, and the probability
of possible future events. Changes in any or all of these estimates and assumptions or the relationships between those assumptions impact
our valuations as of each valuation date and may have a material impact on the valuation of share based compensation arrangements. An
increase of 100-basis points in interest rates would not have a material impact on our share-based compensation. During the period from
the date of the Business Combination through December 31, 2024 we did not record share-based compensation expense associated with these Earnout
Shares as the performance conditions associated with these Earnout Shares were not deemed probable of achievement. Unrecognized share-based
compensation expense for these Earnout Shares with a performance-based vesting condition that was not deemed probable of occurring
as of December 31, 2024 was $6.6 million which is expected to vest subject to the performance-based vesting condition being satisfied
or deemed probable.

Earnout Shares Liability

In connection with the reverse recapitalization and pursuant to the
Merger Agreement, eligible former Predecessor equity holders are entitled to receive the Earnout Shares upon us achieving certain Earnout
Milestones. The settlement of the Earnout Shares to the holders of the Predecessor’s common units contain variations in something
other than the fair value of the issuer’s equity shares. As such, management determined that they should be classified as a liability
and recognized at fair value at each reporting period with changes in fair value included in earnings.

We estimated fair value of the Earnout Shares with a Monte Carlo simulation
using a distribution of potential outcomes for expected earnings before interest, taxes, depreciation, and amortization, or EBITDA, and
stock price at expected commission dates, utilizing a correlation coefficient for EBITDA and stock price, and assuming $50.0 million of
Annualized EBITDA per production line, with each of the production lines commissioned over a five-year period. EBITDA was discounted to
the valuation date with a weighted average cost of capital estimate and forecasted to each estimated commission date. Earnout mechanics
at each estimated commission date were assessed, and if the Earnout Thresholds were achieved, the future value of the Earnout Shares was
discounted to the valuation date utilizing a risk-free rate commensurate with the overall term. Expected EBITDA assumes that each production
line will achieve equivalent production generating $50.0 million of Annualized EBITDA. The commission dates used reflected management’s
best estimates regarding the time to complete full construction and operational viability of a production line, including all permitting,
regulatory approvals and necessary or useful inspections. The Earnout term of 5 years and the Earnout mechanics represent contractual
inputs. The contingent Earnout Shares liability involves certain assumptions requiring significant judgment and actual results may differ
from assumed and estimated amounts.

Derivative Financial Instruments and Other
Financial Instruments Carried at Fair Value

We do not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks. We evaluate all of its financial instruments, including the True Up Shares issued in connection with
the Subscription Agreement and the Subject Vesting Shares issued in connection with the Business Combination, to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 (defined below) and FASB ASC 815, Derivatives
and Hedging, or ASC 815. The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is reassessed at the end of each reporting period.

The True Up Shares issued under the Subscription Agreement do not qualify
as equity under ASC 815; therefore, the Class A common stock, or the True Up Shares is required to be classified as a liability and measured
at fair value with subsequent changes in fair value recorded in earnings. Changes in the estimated fair value of the derivative liability
is recognized as a non-cash gain or loss on the consolidated statements of operations. The fair value of the derivative liability is discussed
in Note 12 - Fair Value Measurements.

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The Subject Vesting Shares liability was an assumed liability of XPDB.
The Subject Vesting Shares liability vest and are no longer subject to forfeiture as described in Note 4 - Recapitalization. They
do not meet the “fixed-for-fixed” criterion and thus are not considered indexed to the issuer’s stock. As such, management
determined that the Subject Vesting Shares should be classified as a liability and recognized at fair value at each reporting period with
changes in fair value included in earnings. The estimated fair value of the Subject Vesting Share liability was determined utilizing a
Monte Carlo simulation, with underlying forecast mathematics based on geometric Brownian motion in a risk-neutral framework. The calculation
of the value of the Subject Vesting Shares considered the $12.00 and $14.00 vesting conditions in addition to the vesting related to the
Earnout Milestone Amount. The Subject Vesting Shares liability involves certain assumptions requiring significant judgment and actual
results may differ from assumed and estimated amounts. See Note 12 – Fair Value Measurements.

Business Combinations

We evaluate whether acquired net assets should be accounted for as
a business combination or an asset acquisition by first applying a screen test to determine whether substantially all of the fair value
of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If so, the transaction
is accounted for as an asset acquisition. If not, we apply judgement to determine whether the acquired net assets meet the definition
of a business by considering if the set includes an acquired input, process, and the ability to create outputs.

We account for business combinations using the acquisition method
of accounting whereby the identifiable assets and liabilities of the acquired business, including contingent consideration, as well as
any non-controlling interest in the acquired business, are recorded at their estimated fair values as of the date that we obtain control
of the acquired business. We measure goodwill as the fair value of the consideration transferred including the fair value of any
non-controlling interest recognized, less the net recognized amount of the identifiable assets and liabilities combined, all measured
at their fair value as of the acquisition date. Transaction costs, other than those associated with the issuance of debt or equity securities,
that we incur in connection with a business combination are expensed as incurred.

Any contingent consideration is measured at fair
value at the acquisition date. For contingent consideration that does not meet all the criteria for equity classification, such contingent
consideration is required to be recorded at its initial fair value at the acquisition date, and on each balance sheet date thereafter.
Changes in the estimated fair value of liability-classified contingent consideration are recognized on the consolidated statements of
operations in the period of change.

Several valuation methods may be used to determine the fair value of
assets acquired and liabilities assumed. For intangible assets, we typically use a variation of the income approach, whereby a forecast
of future cash flows attributable to the asset is discounted to present value using a risk-adjusted discount rate. Some of the more significant
estimates and assumptions inherent in the income approach include the amount and timing of projected future cash flows, the discount rate
selected to measure the risks inherent in the future cash flows, and the assessment of the asset’s expected useful life. When
the initial accounting for a business combination has not been finalized by the end of the reporting period in which the transaction occurs,
we report provisional amounts. Provisional amounts are adjusted during the measurement period, which does not exceed one year from the
acquisition date. These adjustments, or recognition of additional assets or liabilities, reflect new information obtained about facts
and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

Equity Method Investment

In accordance with ASC 323, Investments - Equity Method and
Joint Ventures, investments in entities over which we do not have a controlling financial interest but has significant influence are
accounted for using the equity method, with our share of earnings or losses reported in earnings or losses from equity method investments
on the statements of operations.

Under the equity method of accounting, our investment is initially
recorded at fair value on the consolidated balance sheets. Upon initial investment, we evaluate whether there are basis differences between
the carrying value and fair value of our proportionate share of the investee’s underlying net assets. Typically, we amortize basis
differences identified on a straight-line basis over the underlying assets’ estimated useful lives when calculating the attributable
earnings or losses, excluding the basis differences attributable to in-process research and development and goodwill. If we are unable
to attribute all of the basis differences to specific assets or liabilities of the investee, the residual excess of the cost of the investment
over the proportional fair value of the investee’s assets and liabilities is considered to be equity method goodwill and is recognized
within the equity investment balance, which is tracked separately within our memo accounts. We subsequently record in the statements of
operations our share of income or loss of the other entity within other income/expense, which results in an increase or decrease to the
carrying value of our investment. If the share of losses exceeds the carrying value of our investment, we will suspend recognizing additional
losses and will continue to do so unless we commit to providing additional funding.

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We evaluate our equity method investments for impairment whenever events
or changes in circumstances indicate that a decline in value has occurred that is other than temporary. Evidence considered in this evaluation
includes, but would not necessarily be limited to, the financial condition and near-term prospects of the investee, recent operating trends
and forecasted performance of the investee, market conditions in the geographic area or industry in which the investee operates and our
strategic plans for holding the investment in relation to the period of time expected for an anticipated recovery of its carrying value.
If the investment is determined to have a decline in value deemed to be other than temporary it is written down to estimated fair value.

Additionally, if an equity method investee recognizes a goodwill impairment
charge in its separate financial statements, we will recognize its share of the impairment in its financial statements in the same manner
in which it recognizes other earnings of the investee.

Warrants

We determine the accounting classification of warrants issued as either
liability or equity classified by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity, or ASC 480, then in accordance with ASC 815-40,
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, or ASC 815.
In order for a warrant to be classified in stockholders’ deficit, the warrant must be (i) indexed to our equity and (ii) meet
the conditions for equity classification.

If a warrant does not meet the conditions for stockholders’ deficit
classification, it is carried on the consolidated balance sheets as a warrant liability measured at fair value, with subsequent changes
in the fair value of the warrant recorded in other non-operating losses (gains) in the consolidated statements of operations. If
a warrant meets both conditions for equity classification, the warrant is initially recorded, at its relative fair value on the date of
issuance, in stockholders’ deficit in the consolidated balance sheets, and the amount initially recorded is not subsequently remeasured
at fair value.

Income Taxes

Prior to the Business Combination on March 14, 2024, we were a limited
liability company, or LLC, and treated as a partnership for income tax purpose. As a Partnership, we were not directly liable for federal
income taxes. As of the date of the Business Combination, the operations of the Company ceased to be taxed as a partnership resulting
in a change in tax status for federal and state income tax purposes.

We follow the asset and liability method of accounting for income taxes
under ASC 740, Income Taxes, or ASC 740. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the period that is included in the enactment date. Valuation
allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute
for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits
to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. We recognize accrued
interest and penalties related to unrecognized tax benefits as income tax expense. Management has evaluated our tax positions, including
our Predecessor’s previous status as a pass-through entity for federal and state tax purposes, and has determined that we have taken
no uncertain tax positions that require adjustment to the consolidated financial statements. Our reserves related to uncertain tax positions
was zero as of December 31, 2024 and 2023. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as
of December 31, 2024 and 2023. We are currently not aware of any issues under review that could result in significant payments, accruals
or material deviation from its position.

Recent Accounting Pronouncements

A discussion of recently issued accounting standards applicable to
the Company is described in Note 3 – Summary of Significant Accounting Policies, in the Notes to Financial Statements
contained elsewhere in this Current Report on Form 10-K.

Off Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of December 31,
2024.

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Emerging Growth Company Status

We are an emerging growth company as defined in the JOBS Act. The JOBS
Act permits companies with emerging growth company status to take advantage of an extended transition period to comply with new or revised
accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected
to use this extended transition period to enable it to comply with new or revised accounting standards that have different effective dates
for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively
and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be
comparable to companies that comply with the new or revised accounting standards as of public company effective dates.

In addition, we intend to rely on the other exemptions and reduced
reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an emerging growth company,
we intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report
on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii) provide
all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform
and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit
and the financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such
as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation
to median employee compensation.

We will remain an emerging growth company under the JOBS Act until
the earliest of (i) the last day of our first fiscal year following the fifth anniversary of the closing of XPDB’s initial
public offering, (ii) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion,
(iii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million
of outstanding securities held by non-affiliates or (iv) the date on which we have issued more than $1.0 billion in non-convertible
debt securities during the previous three years.